Sunday, July 18, 2010

Today Deutsche Trustee Company, Delegate on the IIG Funding Limited Sukuk, announced on NasdaqDubai two further defaults on 10 July 2010:

First, IIG Funding did not pay the July 2010 Periodic Distribution Amount ("PDA" or "interest"). As you'll recall, the April PDA of US$3,353,062.50 was missed. Since the Sukuk has a fixed interest rate (6.75% p.a.), the July PDA is the same amount meaning IIG has not paid a total of US$6,706,125.00 in PDAs.

Second, IIG (the parent and ultimate borrower) did not honour its Purchase Undertaking in the amount of US$152,467,782.23 representing principal of US$147,490,000 plus 100% of the unpaid PDA of US$4,977,782.22 on these amounts. That is, 74.2274% thereof.

What is interesting is that Certificateholders did not dissolve the Trust for the April non payment under Article 13. Rather they chose to use the Put Option under Article 6.5. See Offering Circular here.

What that means is that IIG was only obligated to Purchase the interests of those investors who exercised the Put Option (which had a one time exercise date of 10 July 2010). Only 74.2274%. voted to exerecise the Option. Technically, the remaining 25.773% of principal is not past due. Those Certificateholders are in effect in a subordinate state. Not a particularly wise position to be in.

Presumably, the Certificateholders will vote again on a Dissolution - thus accelerating the entire principal and ensuring they are all on the same legal footing. A failure by IIG to honour its Purchase Undertaking is another Article 13 Event of Dissolution.

Anyone out there who has an explanation for this approach - that is, not voting straight away for Dissolution and accelerating all the Certificates - please post. This seems a very perplexing approach. The prudent passenger does not stay below deck on the Titanic after it has collided with the iceberg.

IIG has advised that it is unable to make the payment and referred to its engagement of KPMG to help it devise a restructuring plan.

I'll post separately about IIG's 2009 financials. As you might expect, they are not "pretty".